BSP to go slow on term deposits

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is not in a rush to increase the volume of term deposit facility (TDF) saying the liquidity in the financial system is sufficient to fund economic activity.

BSP Deputy Governor Diwa Guinigundo said there is no need at this point to further increase the volume and frequency of seven- and 28-day term deposits being auctioned once a week.

“We will move whenever it is necessary in terms of volume and frequency. But right now we don’t see the need to increase or adjust the volume of offering or increase the frequency from once a week to twice a week,” he said.

Guinigundo said the central bank would raise the volume of the TDF auctions to P50 billion starting July 6 consisting of P10 billion worth of seven-day term deposits and P40 billion worth of 28-day term deposits.

Since June 8, the BSP has been selling P30 billion through the TDF every Wednesday consisting of P10 billion worth of seven-day term deposits and P20 billion worth of 28-day term deposits.

“I think we are in a stable situation that does not require any dramatic adjustment in the volume as well as the frequency of the TDF,” Guinigundo said.

The change in the volume is consistent with the central bank’s earlier pronouncement that it would initially offer a small amount of term deposits that would be increased gradually based on the daily liquidity forecast.

“We are slowly siphoning off liquidity and migrating liquidity from the overnight deposit facility to the TDF which allows us to keep liquidity for a longer period seven and 28 days,” he said.

Term deposits are common tools used by central banks for liquidity management. The facility allows central banks to withdraw bulk of excess liquidity from the financial system and is suitable for shorter maturities due to their non-tradable nature.

Last June 3, the BSP implemented the IRC system as part of key changes in the framework for monetary operations designed to enhance the effectiveness of monetary policy.

The system includes the implementation of a deposit facility and a lending facility that would form a corridor around the BSP’s policy rate to reduce reliance on the reserve requirement for the market’s liquidity management.

Guinigundo said the BSP has not yet achieved the desired results of the IRC system that was launched only early this month.

“Well not at this point probably because we are just in the beginning stage. And that is something that we expect because we want the market to get the feel of what it is to do active money market operations. We are not in a hurry,” he said.